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Latin American Program in the News: Venezuela In Its Labyrinth

Latin Trade

Venezuela’s economy will close this year with inflation of 30 percent and growth of only 1.8 percent. Can that forecast be altered? Opposition will not be in power in 2013.

“We’re capable of ensuring stability, democracy and peace in this country, whatever any threats we might face, and we can say that absolutely for sure,” Nicolás Maduro, Venezuela’s vice-president, said in an interview with the journalist, José Vicente Rangel. And he added: “This year will be an extraordinary one. Economic growth will be at least 6 percent for everyone.”

Despite Maduro’s claims, the climate of political and social uncertainty appears to be generating a malignant growth in the Venezuelan economy that seems heading for a profound crisis. That is a view in which financial and political analysts, the rating agencies, the World Bank, and others all agree. With or without Chavismo, Venezuela’s economic future would appear to be a labyrinth for which the sole exits are the unpopular measures of a devaluation, a removal of exchange controls, increases in taxes and reductions in subsidies in the domestic economy, not to mention cuts in the external subsidies. According to the Washington Post, Venezuela hands out $500 million a year to Nicaragua, the equivalent of 7 percent of the Central American nation’s gross domestic product. It provides Cuba 100,000 barrels a day of oil, the equivalent of 5 percent of its GDP.

As a result, it comes as no surprise that the credit rating agencies have pointed to the increase in risks facing Venezuela. As Aaron Friedman of Moody’s says: “We have a negative perspective on Venezuela that points to an increasing probability of a downgrade in the rating for the current period. What usually happens is that the negative perspective increases the likelihood of it changing. The perspectives are not only founded on political uncertainty. The rating incorporates the weakness of institutions, the concentration of power in the hands of Chávez. Uncertainty brings with it a deterioration of the economy.”

Many experts point out that the next Venezuelan government will have to confront drastic adjustments in order to return the country to economic health. Will that be possible?

Experts reckon that this is a highly probable scenario. The question then is whether there would be more of the same or a change of direction. “The fact that Chávez has appointed Nicolás Maduro will reduce the competition for the leadership of Chavismo and makes it hard for other sectors of the movement to reject the legacy,” says Cynthia Aronson, director of the Latin American program for the Woodrow Wilson Center. Despite being the heir, critics of Maduro believe that he lacks the charisma to achieve the unity he needs to impose himself within the Chavismo factions, that his relationship with the government is weak and, given the large number of problems that the regime has to tackle, the difficulties in imposing his leadership will represent a serious political deficit.”

In the words of Cynthia Aronson, “The terms of the Constitution have been interpreted with such creativity by the Supreme Court that nobody knows the next step in the transition. In Venezuela, the only certainty is uncertainty.”